Last week Yvonne Hossack, a solicitor who has campaigned for seven years against care home closures, had to sell her much-loved Y-reg Vauxhall Astra to keep her Northamptonshire-based law firm afloat. "It's no Porsche but I'm going to miss it," she says. When it comes to totting up her personal sacrifices, that one is strictly minor league. Hossack reckons she is now facing bankruptcy. She is also splitting up from her husband and selling her share in the family house.

"I've given my life for this work, gladly, and lost everything - business, marriage, home. But I've done it for a reason. I hear my clients sobbing. I come in to work to letters telling me they've died. We all have to die. It is important, though, to die a good death - not in the hands of strangers in unfamiliar surroundings."

For Hossack the enemy isn't the local authority bean-counters who shut down care homes or faceless Whitehall bureaucrats drawing up policy, it's the Legal Services Commission (LSC), which operates the legal aid scheme. She is preparing a libel case against the LSC over correspondence she discovered through an application under the Data Protection Act in February. Hossack claims that the LSC is "waging a campaign" against her, freezing payments and trying to shut down her practice because of the politically charged nature of her work. The commission denies this and argues that local solicitors around the country could and should be mounting the challenges to the closure of care homes. By Hossack's own reckoning, she has 700 clients in 24 local authorities.

Elizabeth Howard's 87-year-old blind and deaf godmother is one of 36 frail and elderly residents at the High Haven residential home in Downham Market, Norfolk, which was threatened with closure last year. "We were distraught because Norfolk county council was going to shut High Haven down and sell it off, probably, to property developers," Howard says. "It is shameful that no one gives a damn for the lives of the very elderly any more - no one, that is, except for Yvonne Hossack."

Elderly People in Crisis, a charity founded by Hossack, tracked the fate of 41 elderly residents at one home that closed who were subsequently rehoused. Within a year, 15 had died.

The High Haven relatives had given up the fight when they were handed Hossack's name by a BBC producer, Ken Kirby, who was reporting on care home closures. "Yvonne Hossack used the law and the press to scare the living daylights out of Norfolk council and if it wasn't for her the home would have closed and many of our loved ones would be dead," Howard says."It really is as simple as that." She was one of many people who nominated the solicitor for this year's Legal Aid Lawyer of the Year award, given by the Legal Aid Practitioners Group.

Unsurprisingly, when there are problems with the availability of public money for controversial cases, frustrated claimants often hit out at the LSC for allegedly doing the bidding of their political masters. But that charge is not often made by claimants' lawyers.

Phil Shiner, the Birmingham-based solicitor who represented CND in its legal action against the government on the legality of the Iraqi war, has come into conflict with the LSC over his equally sensitive action on behalf of Iraqi civilians injured by UK troops. Tabloid opprobrium was heaped on him for sending out a case worker, Mazin Younis, to Iraq to take instructions from people whose relatives had allegedly been killed by British troops. The Labour MP Gisela Stuart described his work as "disgraceful ambulance chasing".

Shiner applied for public funding in February, and signed up to a special legal aid contract for high cost cases in July. But the LSC still has not paid out. Despite the press vilification, he hasn't made a penny out of the Iraqi cases. In fact he has remortgaged his house to raise some of the £35,000 cost of pursuing the case so far.

Shiner alleges that the government "attempts to make it impossible for human rights lawyers to challenge its most controversial decisions" and seeks "to intimidate us through an increasingly Draconian funding regime".

He adds: "It seems that the end game is to force us to give up our contracts, go out of business or to an early death through the stress of it all. If the government's decisions go unchallenged as a result that is a crucially important constitutional deficit."

The LSC calls any suggestion of political interference in its decision-making "an insult". A spokesman says: "We are totally operationally independent from any government department. There is a strict set of corporate governance procedures drawn up and absolutely no avenue whatsoever for government to influence any of our decisions."

He says Shiner should finally be receiving legal aid for the Iraqi cases this week. Why the delay? "He's a campaigning solicitor and he's breaking new ground. But we have to check there is legal merit in what he's applying for and, if there is no precedent, then that is going to take a little longer."

Campaigning lawyers support the way that Shiner and Hossack have gone about approaching clients. The solicitor Louise Christian has had her own fights with the LSC, most recently in her work on behalf of the victims of the Potters Bar rail disaster. Christian defends Shiner's methods. She argues that there is a "huge difference between ambulance-chasing of an ethically obnoxious kind" by claims companies such as the now defunct Claims Direct and "a campaigning lawyer going out and creating a case to highlight a cause". She says that distinction appears to be lost on the LSC.

Hossack alleges that the internal LSC correspondence about her is evidence of a concerted effort to shut down her practice. In the exchange, a senior LSC official fires off an email complaining about solicitors "rampaging far and wide across the country taking on work in which they profess expertise (where there are other solicitors who profess the same expertise and may even possess it)". A colleague responds, saying that the firm "that we wish to subject to the distant solicitor condition is, of course, Hossacks of Kettering". (The condition says solicitors outside the area can claim only the same travelling expenses a local solicitor would incur.)

He then talks about the possibility of curtailing Hossacks' work outside the East Midlands but expresses caution because of her apparent readiness to resort to judicial review. "[If] we lose or concede on the basis of a technical error it will only encourage her to pursue her eccentric path free of constraint," he adds.

The LSC denies Hossack's claims "absolutely" and insists that it will "robustly defend its position". "We would like to reassure Yvonne Hossack that, contrary to her belief, the LSC is not 'waging a campaign' against her or her firm," a spokesman says. "We are simply trying to ensure that we obtain the best possible value for money in funding services."

Such assurances do little to convince Hossack. "I don't believe that the actions that have been taken against me are the actions of particular individuals on a whim of their own. If they had been, those individuals would have been suspended. I believe these actions were not only sanctioned by, but also encouraged by the government."

What does the exchange reveal about the commission? "It's worrying that there is a personal tone that seems to indicate that the LSC hasn't been able to take an entirely dispassionate view of the matter and approach it in a calm and proper man ner," says Richard Miller, chairman of the Legal Aid Practitioners Group.

But Miller is not convinced that the intemperate language reflects much other than understandable LSC concerns. "You can see a legitimate argument as to why taxpayers shouldn't be paying for a solicitor to be travelling around the country doing cases when there are local solicitors who are capable of doing the job," he adds. The LSC points out that there are as many as 60 solicitors around the country with legal aid franchises to do community care cases who are more than capable of doing the work.

Among the nominations supporting Hossack for the Legal Aid Lawyer of the Year award, one supporter noted that her clients were "among the most vulnerable, least articulate, of least socio-economic power, least fashionable and ... abominably represented". Elizabeth Howard asks: "If Yvonne Hossack wasn't on our side who would be?"